Honeymoon is over for GLC

The party is over for government-linked companies. No more sweet deals. No more astronomical profits for public sector projects.

This new approach - forced upon the administration by economic realities - is behind the decision to set up a special purpose vehicle to oversee the construction of the Second Penang Bridge and have a restricted tender for the 7km land portion, which UEM Builders offered to construct for nearly RM1 billion.

Ministry of Finance and Economic Planning Unit officials, troubled by the slow pace of progress on the bridge and the escalating cost estimates, took charge of the project last month.

They set a benchmark cost of RM4.3 billion, and pored through cost estimates put forward by UEM and China Harbour Engineering Company (CHEC), its joint venture partner.

CHEC, which has built several of the world's longest bridges, said that it would be able to construct the 17km-long sea portion for RM2.3 billion.

UEM said that it would be able to build the bridge superstructure for RM1.5 billion and the 7km land portion for RM980 million.

After going through their cost estimates and checking it with industry standards, the EPU and Finance Ministry officials decided to:

● award the construction of the marine portion of the bridge to CHEC.

● offer the bridge superstructure job to UEM but at the reduced cost of RM1.3 billion.

● have a restricted tender for the land portion. Government officials felt that even at RM750 million, any construction will be able to complete the job and make a healthy profit.

But by putting their cost estimates at RM980 million, UEM effectively put themselves out of the running.

A government official told The Malaysian Insider: "It is difficult to justify paying more per km for the land portion than the sea portion where the engineering challenges are greater. Also, at a time when Malaysians are being asked to tighten their belts, giving a hefty contract to a GLC would not have gone down well."

The Malaysian Insider understands that the special purpose vehicle will be headed by EPU director-general Datuk Sulaiman Mahbob but the day-to-day issues will be handled by Tan Sri Zaini Omar, the former director-general of the PWD.

CHEC is likely to accept the offer terms and will begin constructing the marine portion soon. UEM has not indicated if it will accept the offer to build the super structure or box girdle at RM1.3 billion.

If the GLC rejects the government offer, the contract could be offered to other Malaysian construction companies.

As for the land portion, the restricted tender could involve IJM, MRCB and others. Finance Ministry officials are confident that the crossing can be completed by the end of 2011.

They also believe that it is time to become more ruthless with GLCs. The consensus is that while the GLC transformation has produced good results, the likes of Sime Darby, UEM, MAS, MRCB have received special treatment from the government and have crowded out the private sector.

As a result of being pampered, some of the GLCs have not shown the ability to innovate or compete outside the country

Excerpt from http://www.malaysiainsider.com/index.php/headlines/42-lead-stories/2488-no-more-sweet-deals-for-glcs